What is Online Trading And How Does it Work in South Africa? In this article, you will learn more about What is Online Trading and how Online Trading works in South Africa. What Does Online Trading Or Trading Mean? This is one of the most frequently asked question in South Africa. We are here to explain more about Online Trading.
Stock market and stock market trading have always been fascinating topics for people, but in reality accessible only to a small elite. However, the last decades have brought an unprecedented development of the technique and means of online communication, and as a result of the emergence of online trading or trading. They have become accessible to the broad masses as financial markets have reached a new level of evolution.
Forex, online trading or stock trading, the crisis of 2007-2008 and the collapse of financial markets have been fashionable topics in recent years and each of us has read at least one article online or heard a fascinating or frightening history of trading.
In this article we will define what online trading or trading is, all the aspects you need to know and the essential elements you need to be aware of before you start trading! At the end, you will know ‘What is Online Trading And How Does it Work in South Africa’.
What is Online Trading And How Does it Work in South Africa
Before we explain how online trading works in South Africa, we need to provide you with the definition of online trading. Let’s start with a simple question:
What Is Online Trading
Online trading is the activity of buying and selling financial instruments.
Online trading means speculating, or investing in a product to gain value in the short, medium or long term.
The word “Trading” in English means “trading”. Trading is most often associated with financial derivatives and has experienced a massive proliferation with the introduction of the possibility to buy and sell assets in default (ie without owning them).
The most used financial instruments or assets that underlie trading are:
- Shares – securities that represent a fraction of the capital of a publicly traded company
- Stock market indices – aggregate indices composed of several shares of the best performing companies listed on the respective stock exchange and which indicate the direction of evolution of that market. For example, the Dow Jones index for the American market, DAX for the German market, BET for the Romanian market
- Bonds – debt securities issued by states or large companies to finance their debts
- Currencies – such as the euro, the dollar, the leu, the pound sterling, etc.
- Goods – such as gold, platinum, oil, wheat, corn, etc.
- CFDs – contracts for difference, the value of these contracts changes depending on the value of the underlying asset (which can be a currency pair, a stock, a commodity, etc.).
According to Investopedia, trading means “the frequent buying and selling of shares, commodities, currency pairs or other financial instruments, in order to generate profits that exceed the costs of buying and holding. While investors can be satisfied with an annual return of 10% to 15% per year, traders may want a return of 10% each month.”
Trading is therefore an activity that can under certain conditions generate higher returns on investment, but with higher risks for the invested capital.
Online Trading Is Not A Simple Activity
Nowadays, trading is an activity that is done exclusively online and allows access to the main stock exchanges in the world via an electronic connection. All you need is a device – computer, tablet or smartphone – equipped with an internet connection and a trading platform ; and you can practically start trading online.
Apparently it is a relatively simple activity and the media has made a habit of promoting it in this way. Unfortunately it is just a deceptive appearance. Moreover, there are many who promote trading as a quick enrichment scheme. Nothing more false!
Although at first glance online trading provides some opportunities where you can get high and very high returns, practically the highest you can have in an economic activity, the reality of trading on the financial markets is far from so simple.
It is in fact an activity with a high degree of complexity, which requires advanced knowledge of macroeconomics and financial markets, plus a not inconsiderable set of skills needed to trade profitably.
Specifically, although theoretically anyone can trade online, few manage to do so profitably and in the long run.
What Is Online CFD Trading?
CFD trading is the act of buying and selling one or more CFD products .
To better understand the CFDs available on the stock exchange and their importance to the independent trader, we will list the characteristics of a CFD.
First of all, “CFD” comes from English “Contract for difference”, which means in Romanian “Contract for difference”. It is a derivative product applicable to almost all financial products, such as:
- Stock indices
Explained in the simplest way, the CFD makes it possible to speculate on the increase and decrease of the value of a currency pair, an index or gold.
This type of trading has become very popular because CFD trading allows upward and downward speculation of many financial products, such as stocks, commodities or stock indices and especially allows access to them with low capital!
What Is Online Forex Trading
When we talk about the Forex market, we are really talking about the foreign exchange market or currencies. The foreign exchange market is simply the values of those currencies relative to each other.
Forex Trading is the activity of investing and speculating on currency pairs, such as:
- Euro vs. dollar: EURUSD
- Pound Vs. dollar: GBPUSD
- Dollar Vs. leu: USDRON (forex trading Romania)
- Dollar Vs. yen Japanese USDJPY
- Euro vs. yen Japanese EURJPY
Forex Trading in South Africa is a very popular activity.
This is easily explained by the following advantages:
- Strong liquidity of the Forex market with significant volumes on currency pairs
- Real time Forex quotes (24 hours a day, 5 days a week)
It is a market that works non-stop, allowing Forex traders from all over the world to trade the Forex courses they want. High liquidity means the ability to enter and exit the Forex market at any time! The euro and the US dollar are at the top of the list of the most traded currencies!
Moreover, the foreign exchange market has low commissions, which makes it very affordable for a novice trader and has several favorable features such as leverage, spread and the size of the CFD contract. Still don’t know what is Online Trading And How Does it Work in South Africa? Read on!
Online Trading – What Is A Trader?
The typical trader profile can be defined with the help of three distinct but complementary and inseparable categories:
- Analyst – the trader analyzes the context of a particular tool, based on fundamental analysis and technical analysis, although it is quite common for some independent traders to use only one of these two types of analysis.
- The trader himself, who buys and sells instruments such as CFDs, in order to generate gains based on the difference between the buying and selling price of the trading positions.
- The risk manager, because the trader must first of all manage the risk he assumes in the markets in order to remain profitable and to continue his activity.
As you have already understood, a trader must be able to “wear more hats” in order to carry out his trading activity in the best conditions, but a trader is first and foremost a professional in the financial markets, knowing how it works and how to reading and interpreting price fluctuations available on trading charts to make a profit.
How to Trade Online in South Africa
In concrete terms, online trading is based on 4 phases:
- Trading and training courses on the functioning of financial markets
- The actual trading
- Analysis of financial markets to find the most suitable markets with a favorable scenario
- Execution of transactions by sale or purchase order according to the analysis performed in advance
Here are the main steps:
- Choose a regulated broker
- Select brokers based on the quality of order execution
- Identify the type of trading account that works best for you
- Choose the right lever based on your profile and experience.
- Fund your trading account only with amounts that you can afford to lose
- Choose an intuitive, simple and robust trading platform
- Finally, start trading CFDs and Forex currency pairs
Wondering how to trade online for free? Well, this is possible by trading on a demo account.
A demo account is a kind of preliminary step to get used to the trading platform and to test your trading strategy in real market conditions. Obviously, the money available is fictitious, but you have the same information and options as in the case of a real trading account.
Even if a stock simulator will not teach you how to successfully invest in the financial markets, this is the best way to get started in online trading. In the first phase, it is essential to acquire and consolidate your knowledge about trading. Subsequently, the demo account helps you to master the mechanisms of the financial markets.
Virtual trading actually allows you to trade without money. This is usually recommended for people who are not yet ready to invest real money because they do not have the necessary resources and want to deepen the principles of stock markets.
Online trading with virtual funds has a major disadvantage. It does not allow you to feel the real risk you face in the financial markets. In addition, you will tend to relax psychologically in the face of a series of winning transactions.
Don’t think that if you win online on a free demo account you will be able to get the same performance on a real account. The stress that comes with trading (especially when leverage is used) can be significant. This is also the reason why some traders, in parallel with trading on a demo account, try to trade with small amounts on a real account in order to get used to the market environment.
Participants In The Online Trading Activity
The most important players in the financial markets are:
- Central banks
- Other banks (commercial or investment)
- Investment funds
- Hedging funds
- Professional investors
- Private investors
Regarding the Forex market, the participants with the largest share and the greatest impact on foreign exchange prices are, without a doubt, the central banks. A central bank is in fact the provider of currency for the country in which it operates and is therefore the supply in this market. Its decisions have a very strong impact on the quotations of currency pairs.
Small investors, such as individual traders, have a marginal influence on the market, but this influence becomes relevant due to their large number.
To understand the Forex market, you need to know that the supply and demand of currencies are constantly changing and we can see the evolution of prices on a “tick” chart in the trading platform, for example.
The other players in online trading are professional traders and independent traders (or home traders). Both categories trade financial contracts through an online trading platform.
Professional traders are either independent traders or traders who trade on behalf of their clients.
Independent traders are, in turn, mostly traders in their own name.
Online Trading Tips
The Internet is full of recommendations for online trading, but not all of them deserve your attention. However, well-known investors such as Warren Buffet have already published several books on investing. Here are some tips that can be interesting and that can inspire you in online trading.
- Invest money you don’t need to live – the stock market is risky by nature, so it’s not advisable to borrow money to risk it in the markets.
- The best investments are often the simplest – don’t invest your money in tools you don’t understand.
- Risk and volatility are not the same thing – volatility is a normal phenomenon in financial markets.
- Don’t hesitate to take on the losses – even the best traders sometimes lose. The key to success is to know how to reduce your losses and let your gains accumulate.
- Be patient and don’t stress – stock market analysis requires attention and lucidity.
- Choose a serious online trading site – it is useless if you record earnings that you cannot withdraw later (this is why it is important to work with a reliable online broker).
- Develop a simple strategy and test it.
- Choose a trading style that suits your personality. It is important that your trading experience is the best possible, so a system that fits your personality and style will be very helpful.
How Much Money Do You Need To Start Trading Online On A Real Account in South Africa?
With our online trading companies, you only need 250 USD to open a real trading account and start the first transactions on a real account. We remind you that using a demo account is preferable at first.
Developing a trading strategy and plan is especially important before you start trading on a real account. You need to test the chances of success of your trading strategy before you can start trading online on your real account.
Subsequently, the opening of a real trading account is done very quickly – within a day. All you have to do is register on the opening page of a real account.
Is Online Trading Profitable?
Many people want to trade online to get rich quick. In reality, however, things are different. Very few retail traders live solely on trading. However, it is possible in the long term, provided that the survival stage of the first years of practice is exceeded. An effective trading strategy will be important in online trading in a profitable way.
The stock market is a system in which companies finance themselves, and speculators try to make money from price changes in financial markets. Generally, the gains on the stock market come from the losses of other participants.
We can find testimonies of some online traders who lost money, but also of some people who made online trading a profession. Online trading is accessible to a large number of people through a demo account or a real account. However, being a profitable trader requires work, time, start-up capital and especially a strong character in difficult times.
Is online trading profitable in South Africa?
Yes, it all depends on your degree of commitment and the capital you have. It is easier to generate additional income or even a significant real income with a higher initial amount on a real trading account.
However, you must have reasonable goals. There are various advertisements on the internet that encourage trading and that create the impression that online trading means very high and fast profits, with low investments. Which is not, in the vast majority of cases, in reality.
You may earn a lot of money from online trading, but for that you need to be polite, disciplined and follow a trading plan, as well as a well-developed and tested strategy.
Sounds less appealing, but that’s how the most profitable traders work!
How Much Can You Earn From Online Trading in South Africa?
Online trading can be very profitable but involves tailor-made risks, advanced knowledge and experience.
Don’t be fooled by the apparent simplicity of trading – it’s just the tip of an iceberg.
There are many examples of famous traders who have made colossal sums of money from trading. George Soros is one such example, Warren Buffet or Bill Lipschutz but also many others.
It is not possible to advance a generalized average figure of earnings for online trading activity, as it depends very much on each trader, their own trading style, individual appetite for risk, capital available, trading strategy such as and many other aspects.
However, statistics show that a large proportion of those who trade on the stock exchange lose their money and this is, in fact, the reality. Online stock trading is a zero-sum game – in order for someone to win a sum of money, someone else has to lose that amount. And the uninitiated, the enthusiasts by definition and the inexperienced people who initiate online transactions without knowing exactly what they are doing, are the first to thicken the ranks of those who lose money in the financial markets.
The distribution of earnings in online trading is as follows:
- A few big losers
- Many investors lose little
- Many investors who earn little
- A few traders who earn a lot and constantly
If you want to get involved in online trading, you need to keep in mind that it is an activity that requires a lot of work, perseverance, study, exercise and experience. Just as a doctor needs years of study and practice to be able to practice his profession at a high level, so a trader needs years of work and study to become consistently profitable.
You will probably find such information very discouraging, but this is the reality, and in life nothing is achieved effortlessly, and online trading is no exception.
But what differentiates online trading from other activities is the huge profit potential it has. Probably the biggest economic activity you could do. It also involves risks and measures, very true, but they can be overcome. And it depends exclusively on you and no one else!
And this is no small thing!
What Financial Instruments To Choose For Online Trading
With the development of the Internet and fintechs, the markets available for trading have become extremely diverse: stock indices, bonds, currencies, ETFs, warrants , commodities and other instruments.
Professional traders trade in a single market at a time, financial institutions usually have a trading desk for each market. Individual traders, on the other hand, can trade in several markets simultaneously, because the money invested belongs to them and they take the risk to follow several markets at the same time.
If you want to see what trading can mean to you, you can open a trading demo account without any commitment.
Here is the list of tools available at Online Trading Sites in South Africa:
- Forex trading:
- 5 major pairs, such as Euro vs. The US dollar
- 23 minor pairs such as AUDJPY
- 19 exotic pairs such as NZDSGD
- CFD index
- 16 stock indices, such as DAX30 CFD
- 4 futures indices, such as US dollar index
- 6 CFDs on metals, such as Gold CFDs
- 3 CFDs on energy products, such as CRUDOIL CFDs
- 7 CFDs on agricultural products, such as CFD Arabica coffee
- Stock CFDs
- South African Shares
- 147 German shares, such as the BMW CFD
- over 1,400 US stocks on the NYSE, such as the American Express CFD
- 937 US shares on NASDAQ , such as Apple CFD
- And many more internationally
- Bund (10-year German bond)
- 13 Euronext ETFs
- 53 Nasdaq ETF
- And more
What Online Trading Means – Trading Tools
Another definition to answer the question “What does it mean to trade?”: To trade smart also means to use the right tools. In trading there are several tools that any good trader should have access to:
- Trading platform
One of the basic tools in trading is the trading platform. This platform allows you to directly launch a market position to implement your trading strategy.
There are many paid and free platforms. On the side of free trading stations you can find:
- MetaTrader 4
- MetaTrader 5
- MetaTrader WebTrader
If you are wondering which is the best online trading platform for beginners, it means that your approach is not exactly right. You are probably a beginner trader today, but it is better to get used to a professional trading platform from the beginning instead of starting to trade on a simplistic platform, so that later you will have to test more advanced platforms.
Don’t have time to test online trading strategies?
The Online Trading South Africa team has designed a tool for you that can be extremely effective.
It is part of the MetaTrader 4 Supreme Edition package that contains many custom indicators.
This tool is called Online Trading Simulator. It allows you to open positions and track quotes from previous days, weeks or months so that you can practice online trading even on weekends and complete your history. As with performance athletes, success lies in training and repeating the decisions you can make every day.
Another essential aspect for trading is obviously the trading instrument. This can be, for example, a CFD on a stock index, such as the DAX30 CFD. It is necessary to have good execution conditions and a low spread, if possible, without commission.
Through Online Tradings, you can trade the DAX 30 CFD with a typical spread reduced to only 0.8 points, a super fast execution and no commission for intraday trading.
Online Transactions – Risks
Online transactions involve high risks in terms of invested capital because they are subject to market volatility, and the use of excess leverage amplifies this risk. Why is volatility a major risk? Because unexpected events can generate massive movements in market quotations and, if you have open positions, they are subject to that risk.
Consider an event such as the Brexit referendum. On June 24, 2016, as few people anticipated a favorable Brexit result, the pound lost 20% of its value in one day, with hundreds of pips lost in just a few minutes. Or, in the event of major financial crises such as the one in 2007-2008 when volatility remained high for a long time.
Wealth was gained then, but wealth was also lost!
Leverage is an advantage when open positions evolve favorably, but when they evolve at a loss they amplify these losses. As a result, it is extremely important to have an effective trading strategy and execute it correctly in the market.
These are risks inherent in financial markets.
Beyond these, you may have to deal with other risks such as the risk of addiction, similar to that which generates gambling addiction. People who lose on the stock market will continue to invest capital, increasing the risks immeasurably in order to recover the losses previously suffered. A wrong approach that only engages you even more in the spiral of losses.
The risk of fraud is another risk that unfortunately accompanies the trading activity. There are many onerous businesses that seek to profit and deceive beginners and ignorant. Before you place your trading capital on a broker, make sure that it is regulated by an authority with a good reputation in the markets and that it is not blacklisted by counterfeit brokers.
If you haven’t lost your enthusiasm for trading, let’s see what is the best way to start studying online trading.
Online Trading Course
Training is essential when you want to become a better online trader. You can find a lot of courses on the internet to learn how to trade online for free. On the Online Tradings website you can find a lot of interesting courses to learn how to trade.
Is online trading easy to learn? How to be a good online trader?
If we talk about the principles of the scholarship, yes – they are easy to learn. If we are talking about recording gains on a trading account, it is more complicated.
Winning traders will usually keep their trading strategy to make profits instead of selling or distributing it on the internet for insignificant amounts. However, it is not certain that their trading strategy meets your expectations.
Therefore, you can trade online and learn, take trading courses and look for training programs, but it is up to you to find the right strategy for your trading style and capital.
In a forex course many interesting topics can be addressed such as:
- Money management
- The Most Common Trading Errors to Avoid
In order to read the stock quotes in the right key, it is important to know the important aspects related to the technical analysis but also to the fundamental one. That’s why many traders follow tutorials and read a lot of articles, even if they have good trading results. In the financial world it is often mentioned that past performance does not guarantee future performance.
Do You Want To Do Online Trading Every Day?
Day Trading may be right for you!
Day Trading allows you to open a position and close it during the same trading session. Do not hold open positions for the next day. For example, in the forex market, you will need to close a position before midnight to avoid commissions and / or related fees.
Now, if you’re wondering if online trading is possible if you have a full-time job:
The answer is yes, provided you organize yourself properly. You can do this by putting into practice what we call swing trading. This is a type of medium and long term trading that does not involve the need to spend a lot of time to prepare your analysis and orders.
This type of trading allows you to spend only a few tens of minutes a day to trade online. This is mainly done using H4 and daily charts, which represent medium and long-term time horizons and allow you not to miss various opportunities when you are at work.
The Best Sites For Online Trading
There are currently many online trading sites. The principle is very simple: the broker offers you an online trading platform and you can trade in the financial markets through it.
The best trading sites are regulated by FCA or ASF and offer reliable platforms such as MetaTrader and competitive and transparent brokerage commissions: commissions, spreads, deposit fees and withdrawals.
The best way to choose the best site for online trading is to test the proposed demo account and, if you want, to do a test on the real account as well.
How To Choose The Broker To Do Online Trading
When you are a beginner and want to learn how to trade online on the stock exchange, it is MANDATORY to test trading and making online transactions on a demo account, before entering a live account.
To open a demo account you first need to identify a broker to provide you with this account.
A reliable broker must meet several conditions at this stage:
- Be regulated by a prestigious financial supervisory authority such as the FCA in the United Kingdom or the Financial Supervisory Authority – ASF in Romania
- Have on the site the registration numbers (license number) generated by the respective regulatory authorities and the official registration data of the company
- Have a physical address indicated in the contact section and, if possible, visit the respective office or place of work
- Have a professional site and numerous articles and resources related to trading – the larger the site and the more languages represented and the more exhaustive the information, the lower the chances of being a fake broker.
These are the main conditions that a broker that a beginner needs must meet. As you advance in the study of online trading and identify your trading style, the markets you want to trade and your trading strategy, new conditions will be added that the broker you work with will have to meet.
Online Trading – How To Identify / Avoid Fraudulent Websites?
According to news websites in South Africa, the the South Africans have lost about 4.5 billion Dollars in 6 years since trading on fraudulent sites. The FSCA has registered a large number of complaints and even created a blacklist of sites to avoid.
How do we identify a fraudulent site?
- Very often, this is a site based in a tax haven and therefore it will be difficult for the authorities to investigate.
- These are sites that involve people – you are contacted by various people without registering on a site
- The commercial approach is very aggressive – these sites do not give up until you deposit money into their account
- The consultant offers you to trade online and offers you investment advice
The Best Online Trading Offer
If you want to benefit from the best online trading offer, you need to consider the following:
- Is the trading site you have chosen regulated? Is it reliable?
- Where is your money placed from the online broker (Which country? Which bank?)
- What spreads does your online broker offer you?
- Does your broker charge fees for deposits and withdrawals?
- What is the proposed leverage and margin levels?
- Are all types of trading accepted (scalping, swing trading, hedging)?
- Do you trade through a serious broker?
If you analyze all the above, you will be able to make your own opinion about the best online trading site.
To better understand the context, it might be extremely helpful to test on a stock market simulator; Online trading sites often offer this type of service.
Forex Trading Online – Opinions
The best way to get an opinion on an online trading site is to test it on a demo account.
Because, often, the reviews on the internet are written even by the brokerage companies or by the moderators of the respective forum, who are remunerated following the recommendation of the brokers with whom they have partnerships.
In addition, there are numerous fraudulent online trading sites.
If you are going to search the Internet for opinions or forums about online trading, do not delude yourself that you will find the best online trading site or an objective comparison between various online forex brokers. In online forex trading, as in many other things – we cannot rely on anything but ourselves. Thus, it is much more useful to do your own comparative analysis than to look for such answers on forums.
Types of Online Trading
Depending on the financial assets, we can distinguish between:
- Forex online trading
- Online stock trading
- Online binary options trading
- Online futures trading contract
- Online trading stock indices
Depending on the means of payment, there are:
- Paypal online trading
- Neteller online trading
- Skrill online trading
- Online trading by bank transfer
- Online trading by credit card
Online Trading Styles
After studying the basic theory for beginners and opening a demo account, the next step is to see which trading style best suits your personality.
The most popular trading styles are:
- Long-term trading
- Swing trading
- Intraday trading
Long-term trading involves initiating online transactions that last months or even years, follow broad market movements, trends on large time charts, daily, weekly or even monthly chart. It is suitable for traders who do not have time to study and monitor the charts daily, but only a few hours a week and open only a few positions during a whole year.
Swing trading involves opening online transactions that last from a few days to a few weeks and that follow broader movements on the H1 or H4 charts. It is an intermediate style between intraday trading and long-term trading, with a fairly small number of transactions. It is suitable for traders who want to enter the market more often and do not keep their positions open for very long periods of time.
Intraday trading refers to a strategy through which online transactions are initiated only in a single day, without keeping the positions open overnight. Also, the mentioned strategy follows small movements on graphs at medium time intervals, such as M15 and / or M5. It is suitable for traders who have enough time to sit in front of the monitor, monitor all their transactions and analyze the market to place orders at short intervals.
Scalping refers to placing orders over very short time intervals in order to gain only a few pips in the market, using very short interval charts, prefucm M1 or Tick. In this style of trading, traders often open many positions at short intervals, which is why brokerage commissions are starting to become extremely important. This is specific to highly active traders who also have sufficient time to analyze the market and to open and / or close trading positions at all times.
The chosen trading style will be the basis for building your future trading strategy. So choose the one that best suits your preferences, your character, but also the time you can dedicate to this activity.
Online Trading – Conclusion
At the end of this article, you can already form your own opinion about online trading and answer the following questions:
- Does online trading suit me?
- How much money do I need to start investing online?
- How long do I need to start?
- Is this approach feasible?
- What to start with?
Therefore, if you are ready to start this new online trading activity from home, we invite you to test the free demo accounts offered by Online Trading South Africa, to trade online and securely the assets you choose, thus finding out if online trading is right for you, really appropriate. That’s all about What is Online Trading And How Does it Work in South Africa.